Portfolio balancing and diversification for long term wealth creation for HNIs

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April 27, 2021 1:25 PM

The more money one has, the higher the options for them to move from plain vanilla products like stocks, MF, FD, bonds to more complex products like PE funds, art funds, real estate funds and structures.

Covid-19 pandemic, HNI investment, Impact of Covid-19 on investment pattern, legacy planning, HNIs, UHNIs, Drafting Will, Diversification, succession plan, real estate, financial advisor, custodian, investment planning, investment planning for women, financial freedom, life goals, career breaks, retirement, life insurance, ULIP, savings, income from investments, double income families,Traditionally, HNIs used to rely on a mix of equity and debt investments for growing their wealth. Along with economic and market cycles, the preferred asset classes also kept varying.

Ultra HNIs have varying investing approaches, starting from new-age entrepreneurs who have built valuable businesses, to scions of business. Experts say, even though there are similarities when it comes to their investments, it will be wrong to assume that it’s all in the same avenues.

Anurag Jhanwar, Co-founder, and Partner, Fintrust Advisors says, “High Networth Individuals are widely defined as those having an investible surplus of more than Rs 5 crores. By 2027, there will 9.5 lakhs HNIs from close to 3 lakhs currently. HNIs form 58 per cent of India’s GDP, with close to 30 per cent based out of Mumbai and Delhi alone.”

Traditionally, HNIs used to rely on a mix of equity and debt investments for growing their wealth. Along with economic and market cycles, the preferred asset classes also kept varying.

For instance, about a decade ago, real estate was a favourite for investors. According to an RBI report from 2017, ‘Indian Household Finance Survey’, amongst other things it stated, the average Indian household holds 84 per cent of its wealth in real estate and other physical goods, 11 per cent in gold and the residual 5 per cent in financial assets. Commercial real estate is one such asset class that had seen a substantial increase in allocation. However, due to lack of returns from this asset class as well as under-performance for a prolonged time, experts say there came a shift in preferences. Over the years there is a tilt in the preferences towards financial assets over physical assets.

Jhanwar, adds, “HNIs have relied on a mix of debt and equity investments to plan their retirement and provide funds for their children. Over the years there has been a shift towards alternative asset classes which offer instruments that match the cash flows with liquidity and inflation.”

Going by the figures, in 2019 equities remained the most preferred asset class in the portfolio with 29 per cent allocation, followed by 21 per cent allocation for bonds and 20 per cent for property investments. “Unlike retail investors who prefer diversifying their portfolios for preserving their wealth, the HNIs focus on concentrated portfolios to create more as they plan their strategies from a long-term perspective,” says Jhanwar.

Here are some of the mistakes riches should avoid while managing their fortune!

Avoid being pernickety or fussy

Experts say it is always better to be hands-on with one’s finances and wealth. However, Jhanwar says “what concerns is the riches’ tendency to emphasise on minor or trivial details and lose sight of the big picture. For instance, giving unnecessary importance to either tax efficiency or resisting critical rebalancing of one’s portfolio for the want of saving exit loads, etc.

Avoid being an emotional pendulum while making investment decisions

According to experts adopting a balanced and disciplined approach to one’s portfolios may sound easy, however, it could become extremely difficult to follow. Jhanwar says, “HNIs are often found oscillating between fence-sitting and super active when “FOMO” kicks in. To be able to invest successfully, HNIs must calmly focus on asset allocation and avoid this evil habit of an emotional pendulum.”

Avoid drifting towards more complex – even simple investments are equally critical

The more money one has, industry experts say the higher the options for them to move from plain vanilla products like stocks, MF, FD, bonds to more complex products like PE funds, art funds, real estate funds and structures. Hence, follow your advisor’s guidance and invest only when it merits to incorporate the more complex products in your portfolio, not only because they are exotic.

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